senator. i have the table in front of me contained in the aca. the bottom line over the coming decade is $1.4 trillion. >> mr. chairman, i ask the record of our proceeding include the letters submitted by the appropriation subcommittee chair along with a statement by each kolg for sequestration to be replaced. >> without objection. >> as we're all keenly aware, january 15th is the deadline for passing legislation to keep the government running. the shut down caused our country 120,000 jobs, billions of economic activity. this conference committee must be successful in reaching agreement on a funding level for fiscal year 2014 with enough

time for bills to pass before january 15th and a funding level for fiscal year 15 so that we avoid another dysfunctional, unrealistic budget and appropriations process in just a few months. as noted in the letter if our appropriations chairs. there is also bipartisan demand for us to end the sequester. as mr. rogers has said, sequestration, and i quote, is unrealistic, ill conceived, discretionary cuts must be brought to an end. as cbo has repeatedly noted the sequester will cost our economy an estimated 800,000 more jobs in 2014 alone. so i think it bears repeating, could you please share cbo's analysis on the jefr all impact of sequestration on job and

economic growth for 2013 and what you think the impact will be for 2014 if sequestration remains in place? >> so congresswoman, i think the things that -- let me quote from a letter we wrote to congressman van holland a couple months ago. we said that if the automatic spending reductions specified in the budget control act including both the effects on discretionairy spending and the mandatory spending, those reductions were eliminated that would increase real gdp by .6% by the fourth quarter of 2014 and would raise full time equivalent employment by 800,000 people by the fourth quarter of 2014. >> i thank you very much. and i really thank you for your testimony today. this just amplifies the stakes

of our conference committee's work. i hope that our committee will really begin working in earnest toward an agreement in the coming days to prevent the economic damage that partisan politics and the sequester could cause in the coming months. thank you, mr. chairman. >> thank you. let's go with -- right next to you, congressman cole. >> thank you very much, mr. chairman. i want to assure you that my grend and i d good friend and i did not coordinate our roshgz. i was going to ask that letter be placed in the record. i'm glad my friend has already done it. so please make that for both of us. >> speaking order was just random. just a couple points and then a question. i want to quote from that letter. it does make a couple important statements. we ask that budget committee endeavor to agree on a common overall discretionairy number by november 22nd. november 22 is nine days away.

and we don't have any schedule meetings between the 22nd and december 2nd. so this is a matter of some urgency. so our colleagues on the appropriation committees which includes my friend miss loy and myself have the opportunity to get about the business of arriving at real spending bills. this is a bigger and littler problem than what we're faced with. he has given us a wonderful presentation of long-term debt. we don't disagree with any of that. he is right. we need to address it. on the other hand, the more immediate problem, the two bodies are $90 billion apart. we ought to be able to give the appropriation a number for both fiscal year 14. i would hope fiscal year 15 as well.

so they can have an uninterrupted stretch of time to deal with the budget. let me ask you this question. i would ask you if you could, you may not be able to do this off the top of your head, proubbly can't, are there enough savings in the three budgets to bridge the gap between the house and the senate budget? which is again, only $90 billion and over a two-year period i think the two chairman have said they can deal with $125 billion worth of spending. again, not a lot out of almost $7 trillion. >> i think there are proposals for spending cuts in the two budgets that overlap but i can't list them. i don't know what the magnitude is. >> could you just prepare for us for future reference a list of those sorts of cuts so we have the options really that all sides have agreed on to one agree or another in that area.

>> we can try. budget resolutions is not pieces of legislation that we attach costs to. there are plans of the budget committees that they build using information from us. but i can see if we can, if we can be helpful to you in that. >> i would appreciate that. thank you very much. >> we have all looked at each other's budgets and look where the overlaps occur. that is the discussion we're having. >> just if we had that at the disposal for all the members. i think question put the appropriators to work. >> thank you. >> senator coons. >> i'm deeply concerned about what's reflected in your chart that while short term unemployment has come back down, long term unemployment remains very high and is persistent and woringly so in terms of the human cost and the long term

cost for our economy. you testified before that not all cuts are the same. and that there are some ways in which we are cutting that are hurting our long term competitiveness. they produce longer term reductions in our capacity and that we should be prioritizing things that will accelerate growth, that we should not be simply trying to get through this difficult fiscal time in a way that focuses on austerity. we should be investing in a way that sustains growth. what types of policies in your view could both help accelerate growth and do so in a way that would deal with long term unemployment? and what are the budget airy implications for long term unemployment? >> the first part of your question, senator, of all nondefense discretionary spending, half represents

investment of some sort about 20% of nondefense discretionary spending is investment in physical capital such as highways. another 15% is -- goes for education and training. over all, we think the investments build a stronger economy in the future and cutbacks in those investments would reduce output and kmk in the future. but i think it is also important to say that different pieces of those elements of spending may be much more effective than others in terms of long term growth. we said that -- this is about research. federal spending and support of basic research has an average has a significantly positive return. we also noted that gross generalization is difficult to

apply as guidance for decisions across budget functions, agencies budgets and appropriations subcommittee jurisdictions. so there is some evidence that we generated for other federal investments. it is nothing like a comprehensive evaluation of where in that large nondefense pool the money should be devoted. on the question of long term unemployment, this is very damaging. obviously for the people involved, many of whom have very little source of support for an extended period of time. but whatever savings people may have to get through a short unemployment spell is much more likely to be exhausted if one is unemployed for half a year or a year or longer. but also has beyond the personal effects important economic effects over time. some people who are unemployed for a long time simply give up looking for work. some people find their way into

disability insurance. the applications for the social security program have gone up rapidly over the past few years. people go into that program very rarely come back out of it into the labor force. technical skills and connections to the workforce, connections to people who are working. so it poses a very large risk. of there being some set of people that will not find their way back to work at all or find their way to the productive sort of work that they were in before they lost their jobs. >> are therein vestments in skills training and in the manufacturing sector if particular that strike you because of that combination of factors? >> i don't have a simple report to that. we reviewed the number on a large number of different ways of trying to help people get back into the labor force.

a number of the programs have been successful on a small scale and have not been tried on a large scale. it's a hard thing to do. i want to zis courage people from doing it. i don't have a short, crisp answer. but we would be happy to sit down with you and talk about the elements in that report and help you -- help you construct poll i that area. >> i don't know how we can hear that since sequestration is working. we've heard arguments for raising taxes. you can't raise taxes high

enough to satisfy the appetite of washington spending money. the tax code is a mess. but closing tax loopholes to spend more is not going to have long range good results because you get the higher level of expenditure and keep it there. closing loopholes for tax reform is what is needed and i support that. i'd like to give a caution to rumors that there is compromise on sequestration so we can spend more on defense. since the economy is so bad and since jobs are what's on everybody's mind and what we ought to be working on, i hope we keep in mind that economic strength of our nation is a necessary precondition to our military strength. xpri compromising on sequester is

shortsighted and is -- and hopefully those suggestions that you hear primarily out of the house of representatives won't be pursued. if they are pursued, i think it's shortsighted from the standpoint of the cooperation that you have to have on hill between people the same political party it's kind of like feeding senate republicans to the wolves. i hope you remember to keep our eye on the ball. we can be the sleeping giant that admiral warned the japanese warlords about. don't attack the united states. we have to have a strong economy in order to have a strong defense. i yield. >> senator nelson is not here. let's go to senator warner. >> thank you, doctor. i have actually two questions. first of all, i just a question.

as i understand under the affordable care act there is a three-year assumption of 100% pay of the medicaid expansion. i wonder if that assumption carried out throughout your budget outlook or your assumption assumes that that share will be reduced, number one. and secondly, as i look at your budget outlook, where i see the real significant issues in terms of getting our fiscal house in order, the trustees have said medicare goes bankrupt in 2026. the disability fund you referenced, 2016. and is there a way for us to address our long-term fiscal outlook if we don't reform those programs or also are we able to even sustain them for the beneficials that rely on them? >> senator, your first question, our baseline projections follow current law in which the federal share of medicaid costs for the

additional populations under the affordable care act declines from 90% over a few years later. our projections incorporate that and that feature current law. >> so just to be clear, if after three years the states come to us and say we want you to continue to pay 100%, that is not accounted for in this fiscal outlook? >> that's right. we would provide a cost estimate for that legislation. it would show additional cost for the federal government. >> with regard to obviously important programs, i think, to all of us but also a big challenge we face. >> yes. so on your second question, as my charts showed, the rise in spending for social security and medicare under current law relative to the sides of the economy is quite large. and that will require one of three possible or a combination of three possible courses of action. you could raise revenues above

the historical share of gdp. or you could cut all other federal programs, the combination of all other federal programs below the benefits and services that we have become accustomed to. it's not an analytic matter to say which is better or worse. the analytic point is you don't have a choice about doing at least one of those things and can you do one or two or three of them if you choose to. but at least one of those things will have to change. >> you also pointed out we're going to be at historical highs for revenues. at some point it's a negative impact on economic growth. >> so revenues will be a historically high share of gdp. this will be at historically low share of gdp. but the movements as we think they'll play out under current law is not enough together to support the extra costs for social security and medicare relative to their history. and that's why more has to be

done. >> senator warner and then we'll go with congressman black. >> i think getting something done for a year or two will have a positive infect on the marketplace and upon the economic growth and replacing some of the worst sequestration i think is a worthy goal being kind of virginia being ground zero. and i wondered whether, let me get this out, i believe we are

now imposing upon the economy a debt ceiling tax that you'll see a spike in interest rates every time you see a debt ceiling date come about. i'd be curious to know whether the cbos done any estimate of what kind of cost that bear would have on the debt ceiling taxes coming around february 7th. delayed maintenance of our construction is a tax because at some point it will have to be replaced. and i'd love to know whether there's been any analysis made on that subject. and third, i know senator portman and i have gone around and around on this. and this was just raised by percent of revenues. i would simply point out one of the reasons why we have a 17 trillion dollar debt is that based upon historic revenue numbers we've never -- we've always been at an annual deficit. the only times we've had a surplus within the last 30 years

is when revenues have been between 19.5% and 21%. anything at the lower rates, we'll be in deficit. i will simply say even with entitlement reform, and stroingly believe in entitlement reform, i guess i question on a going forward basis and even look at your numbers with revenues that i -- at a higher rate that still below 19 were still in that gap. two questions. one, because of the demographic bulge, it's hard to imagine how you're going to be able to drive the spend down to the numbers that could be dealt with on dmind of historic revenue basis. and last point, it seems to me that one thing that we may not have factored in, i don't know if you did any analysis, is that not just in america but across the world we have seen a dramatic shift from the private sector to the public sector in both the areas of workforce training and particularly the

area of research and development. there is no longer bell lab and more and more corporate america and korncorporations around the world are accepting the public sector to pick up the r & d costs. can you see to that as well? >> yes. on your first point about interest rates. i would say we think we have it fully in our projection. you suggested that maybe we had not been fully taken onboard. our numbers, we think it is fully taken onboard. we have built in a substantial increase and normalization in interest rates to a level that is consistent with the historical experience but a little higher because they'll be more federal debt relative to gdp under current law. we have not tried to quantify. that on your point of instra structure, we've done work on highways and drawing on work the highway frel administration. it says in order to maintain the

current functionality of highways, more would need to be spent than is being spent under current law. and using a building off the cost benefit analysis that the federal highway administration did that amount of spending and they would exceed the costs would be much higher than the amount under current law. you asked about the difficulty of whatever reforms were made to social security and medicare and keeping costs back where they used to be and i think that's -- i think you're right, senator. over the past 40 years, social security and medicare represented outlays for the program were 6% of gdp. by 2038 under current law, outlets will be about 11% of gdp. so the cut if spending that will be required on the programs that will be required to bring them back to the historic am average will be a cut of almost one

half. we don't have anything that would accomplish that. as i said to start with, there is no particular reason why those programs should go back to the historical share of gdp given that many more people and much larger share of the population is eligible for them. on the other hand, if one does not restrain the programs, then significant changes need to be ma made. >> is there anything else you'd like, senator? >> r & d, we're in the process of producing a chart book of federal investments and some of the private sector investments as well. in terms of development, there is often a great deal and growth in private sector development but in the more basic forms of research. that is the sort of output for

the economy that the private sector will tend not to do enough of. that is really a responsibility for the federal government to support that sort of basic research. >> i'll run through the list of those of you who know will know. >> thank you, mr. chairman. in listening you to, it really is striking to me we have a short term challenge that is different than long term in some ways. and the good news is we've actually begun to tackle long term and have been put in place the yearly deficit coming down by half. good news. you talk about growing the

economy and being smart not reckless in what we're doing. when we look at that, it seems to me a good way of summing up is you're not going to get out of debt with more than 11 million people out of work. a number of us are talking about the economy. i'm wondering if you might just talk a little bit more in terms of the short term how we're smart about growing the economy. the manufacturing institute says there are 600,000 manufacturing jobs unfilled right now because skills are different than the jobs available. and national skill coalition says about 300,000 people are going to be turned away from training programs because of the sequester cuts. so we have got inability, if we continue down this road to provide training whether it's the 20 to 25-year-old that you talked about where we have a 12.5% unemployment or others. i mean we're -- if we don't do this right, if we don't stop

what is in my judgment recklessness in terms of how we approach cutting spending, we are cutting our nose to spite our face in terms of economic growth. since 2011, countries like china and india increased investment and basic research, we're cutting ours. again, short term, not looking very wisely at n. what happens in terms of across the board cuts on sequester on education innovation which seemed to me are critical if we're going to grow the economy and get people back to work. you could talk a little bit more about that in terms of what we need to do, skills gap, so on? >> as i mentioned in my opening remarks, the sharp reduction in the deficit over the past few years has had the beneficial effect of reducing the accumulation of government debt.

that is a tradeoff that is up to you and your colleagues to make. i think we've been clear now for a number of years. i think the skills gap is partly an issue in the short term and even more important in smub ome terms. important source of growth in the american economy, growth in people's incomes has been the greater education that people have received. if that doesn't continue to happen, then that will have adverse consequences on our future ability to consume our ability to raise our standard of living over time in the way that we have in the past. and the government supports programs and mostly at least through nondefense discretionary spending of one sort or another

that can help to build people's skills, can help to do the research that's needed. as you discussed the amount and composition of nondefense discretionary funding, i think it is appropriate for you and your colleagues to be concerned about what the effects are over time of those different sorts of investments. and we're happy to talk with you about the work that we've done or know of that other people have done. as i said, i think there aren't simple lessons about -- in all -- there isn't that much evidence about just how much -- how certain things work better than others. whatever there, is we're happy to try to bring to your attention. >> the number one issue i'm hearing does relate to this issue of skills gap. i hope we'll keep that in mind.

mr. graham? >> there. >> let's talk about general treasury obl obligations. medicare. what percentage of medicare payments come from the general treasury? >> so senator in our long term budget outlook, we reported -- we showed that in a figure. >> let's just make it really three out of $4? 2 out of $3? >> so, senator, about now roughly half of total medicare outlays come out of general revenues. the other half come largely out of medicare payroll taxes.

>> premiums are about 10% of medicare payments. >> over time this problem really becomes difficult for the general treasury, right? medicare obligations over time grow? >> yes, sir. very much, senator. >> 10,000 people a day and the baby boomers are retiring. there are 80 million of us over the next 40 years are going to go into retirement. when i was born in 1955 there were 16 workers for every retiree. today, how many are there? >> a few, senator. >> three. in 20 years, how many will it be? >> two. >> right. so here's the big dilemma. if 80 million people are going to retire and the numbers are going to change from three now and 20 years two, we have a problem. you agree with that? >> yes, senator. >> so when it comes to a general treasury obligations in the

future, i just don't see how we can avoid entitlement reform. do you gr agree with that? raise taxes a lot or cut benefits a lot. >> they have to cut even further what is scheduled in current law into the other benefits and services of the government provides. >> that will amount to a smaller share of gdp than it has in many decades. logically, that is your number. >> we have a prom that can't be ignored. that is the retirement of the babyboomers. is that correct? >> that's correct, senator. >> is that why president obama decided to address cpi reform and means testing of medicare benefits? >> as you know, i will not speak to the president's motivations. >> why don't you go talk to him and ask him? >> i think not, senator.

>> i would go along your lines, we did analysis of the sources of growth in spending. >> would you gr he with me that it would be responsible for a president of the united states, democrat or republican, to be thinking about cpi reform and means testing, medicare benefits? >> senator, i will not comment on what the senator should do. >> we were talking about two minutes for questions. >> all right. >> may i just note for your and other people's interests, we did an analysis of the sources of growth in spending for social security and medicare as a share of gdp over the next 25 years. and fully half of the growth in spending for those two programs, share of gdp is just from the aging of the population and rising number of beneficials. >> can you tell me how two people -- >> last question? good lord. >> this is why he shows up late. >> tell me how two people can do what 16 people used to do.

>> that would require a lot of work, senator. >> senator merkly? >> thank you for this discussion. >> i want to reinforce the budget, we should think about the current state of affairs in america. the current state of affairs is a large portion of the economy is going to very few. large percentage of the wealth is held by very few. but another key point is that we are losing living wage jobs. by one estimate, 60% of the jobs we lost in the great recession were living wage jobs and less than 40% of those we're recovering our living wage gojo. is that a piece of the puzzle you have insight on? >> i can't speak to the precise numbers off hand. but you're certainly correct that the -- a number of decades now a larger share of total income has gone to people at the

very top of the income zrp distribution and other people experienced very little increase in their standard of living. >> the reason i want to emphasize this living wage job is when folks have living wage jobs, they don't need other programs and reduces the government expenditures considerably. >> i just want to reinforce this point over investing for growth. we've had some comments around the table that if you are spending money on a tax loophole or a credit or deduction and you close that loophole, you should not consider spending that money on something that would create growth.

we have tax loopholes of basically compensate companies and we regard them for shipping jobs oversees. is that any possible way that can be construed as something that really helps our country, grow our economy here at home or increase the number of living wage gojobs? >> senator, i don't want to speculate about the features and the particulars of the tax code. reform of the corporate tax code and reform of the individual tax code could have a significant positive he infect effect on th economy and people in that economy. >> you're being very diplomatic. i think most of us understand if you spend money to eliminate jobs in america and put them somewhere else in the world, that hurts our own economy here at home while investing in training to create jobs here improves our economy. >> yes, senator. but there is a growing and

complicated empirical literature by economists about how helping u.s. companies compete overseas can oorneither hurt or help the activities in this country. that is an issue i don't want to wade in off the cuff while i sit here. >> okay. thank you. >> thank you. senator mccain? >> thank you, mr. chairman. i want to ask you a question about what i thought was the end of your oral presentation. we don't have the written testimony. i don't want to put words in your mouth. tend of your oral presentation after you were done with the charts you were sort of offering the advice to us about the sa -- sulutory effects ofndin ch wou this refers to the opening comments that senator warner made. i've been worried about sort of uncertainty of an ankle weight around economic recovery.

i would just like to have you collaborate upon those final comments and talk about the extent to which you think uncertainty has been an ankle weight on the recovery and if we could find a field for 14, 15 or maybe even set parameters for begun we would likely see positive economic effects. >> yes. we and many analysts i think happened concluded that uncertainty about federal fiscal policy has been considerable drag on economic activity the past few years. but quantifying that effect is very, very difficult and we got some people speak at our panel of economic advisers in fact to have done work in that area to see how far we could go and i think the conclusion of the rumor -- room in the advisers was the results were qualitatively very suggestive but there was no way to quantify that. that's what we don't turn out with numbers. lots of things are important that can't be quantified. in our judgment and many of the

people the uncertainty about what will happen, the taxes, federal taxes and spending has been an important source of, and important headwind to the economic recovery. my remarks included by noting that a broad solution to the long-term budget challenge would of course be salutary, but that even if that is not feasible now, we allocating portions of the budget in ways that fit with what you think would be best for the country and would reduce uncertainty about what fiscal policy will do over the next year or two or three, while improving or at least not worsening the long-term budget outlook would be a positive factor for the economy. now and next year and the year after. and i think there are very few large problems that are settled in one go. i don't want to discourage ambition on the part of the committee, but i think one should, many lines of life

should not be the end of the good and i think that applies to budget policy as well. >> thank you. mr. wyden. >> thank you very much, mr. chairman. director elmendorf, i think we know traditionally when you're trying to find a consensus for conference like this you look to both sides in areas where they are on record supporting changes your for example, chairman camp in the house, and the president treasury departments, have identified among the trillion dollars of tax expenditures that the tax treatment of derivativ derivatives, particularly inefficient and abusive. you can't be in the business of advocating specific policy, and we all get that. so let me just put this as a theory. is it correct to say that theoretically, theoretically you could eliminate several of the most flagrant tax loopholes without compromising the broader

tax reform agenda? just in theory. >> yes, senator, that sounds right to me. >> thank you for that. and the only other thing i wanted -- chairman ryman, is asked to we put in the record at this point a chart that director elmendorf sent to you a few weeks ago, thought it was particularly important because the chart demonstrates that for 2014 congress adhered to the caps for nondefense discretionary spending but chose to disregard the caps were defense and i would just ask unanimous consent we put that chart into the record at this point. >> without objection. >> thank you. >> mr. king. >> thank you, mr. chairman. i had a real sense of urgency about this. for one of the reasons that's been mentioned several times and that's uncertainty. there's no question that the uncertainty of the policy in washington is affecting the economy. it's also undermining confidence generally in the country and undermining certainly confidence in this institution.

to that end i have a modest proposal. i commend to you as suggested way to begin to talk about a result for this conference. i call it the groggy proposal. they tell me it's -- grande is in the middle. it's a medium size. >> i just call it medium. >> meeting, okay. is what i'm proposing, a 10 year deal which would include mandatory cuts, cuts in mandatory spending, revenues and a smoothie to substantially mitigate the effects of the sequester that produced the same deficit reduction effect. number one, cut the sequester caps in have through a combination of cuts in mandatory spending of 255 billion, and revenues derived from reducing corporate tax expenditures of 200 billion. you would generate an additional 325 billion in additional revenue from corporate tax reform which would be applied to corporate rate reduction.

and an infrastructure fund in a ratio of five to one. $275 billion rate reduction and $50 billion infrastructure fund which would take the current corporate rate from 35% to 32.5%. you are left with half the sequester amounts and do it apply the smoothing concept that senator sessions have suggested in terms of interest of -- hindsight, the growth rate which would essentially minimize -- >> do you -- >> smooth. i'm sorry, smoothing the rate of growth in the sequester amounts but as you know there are varying growth rates. and if you lower the rates in the out years can increase them in the near years you can in effect eliminate the cuts that we are now facing. this would provide certainty to the appropriators, we give them numbers they could then work with and that in turn gives us the flexibility that many people

have talked about in the appropriations process here in the congress rather than in the administration. i think there's something in there for everyone to dislike, but i hope that you will take a look at it and consider this as a possible, and at least further deficit reduction further talks but it solves the immediate problem of a sequester. and yet we end up at exactly the same place in terms of deficit reduction as under current law. so that's the proposal that i commend to you. >> thank you. as mentioned before i encourage everyone of our colleagues if they have suggestions, please submit them, but thank you. mr. van hollen. >> thank you, mr. chairman. thank you, dr. elmendorf. i just want to get back to a point that was raised by senator portman and senator warner with respect to historic revenues as a percentage of gdp. you pointed out from 1973-2012

it was 17.4% revenues percent of gdp. of course, we were running deficits at 3% on average the as senator warner pointed out, the only time in that entire period we did not run deficits was 1998-2001 where the revenues as a percent of gdp averaged about 19.5%. if you look at george our, under current policy -- if you look at your chart, we would still be at least a percentage point approximate of revenue gdp below what it was when we balanced the budget and i would point out between now and then, we will have a 33% increase in medicare beneficiaries and a 30% increase in social security beneficiaries. so huge increase in seniors that qualify are eligible for social good and medicare at a level --

lower revenue of gdp 10 years from now than we had in the years that we actually balanced a budget. i wanted to emphasize that point because it seems to me it's hard to say you care about reducing our long-term deficit but had a position that you won't close a single tax break or loophole or eliminate any tax expenditures for the purpose of reducing the deficit. senator crapo pointed out in response to your point of the recovery helped cushion the economy during a really difficult time, that some of the debt service in the out years will provide a little bit of dry. i would just point out that the drag from interes the interest s were occurred as a result of the wars, unpaid for prescription drug plan and the tax rates dwarfed any out your drag from the recovery bill. the sequester as you pointed out will result in approximately 800,000 fewer jobs by this time next year. we should fix that. my question, mr. elmendorf,

deals with an employment compensation. at the end of this year the current policy on unemployment compensation will expire. can you tell us what impact that will have on economic growth -- these are people who are still working for work, out of work through no fault of their own -- what benefit would be to the economy from extending the current policy unemployment compensation? >> congressman, we will report about this time last year that extending the additional unemployment insurance benefits through 2013 would provide a boost to gdp and to jobs in 2013. .. 2013. we think extending the benefits now through the end of 2014 would provide a boost to jobs next yearme. we have not yet tried to quantify that. you may be about to ask. >> yes, if i -- i would ask cbo if you could quantify that impact. thank you. >> i'll look into that.

>> let's go senator johnson anden in senator sessions then senator murray. >> we were given a sheet of paper on the possible obama >> that sounds about right, senator. >> okay. and then the treasury has a $2.6 trillion liability, correct? >> yes. >> okay. so if you consolidate the books of the federal government to as set offsets liability, it has a monetary value of zero, correct? >> yes, that's right. >> so the federal government has no monetary value in total, consolidated basis. >> so and, in fact, senator, we work, as you know, on a consolidated basis, that's why we talk about the -- >> i understand. but again, the power of the government as an entity, it has zero monetary value. now i want to go back to my costs of obamacare. in front of you now is what i was looking at that showed over the next ten years the costs of the affordable care act will be about $2.4 trillion.

i'm not sure what you were categorizing at 1.3, but do you agree with the national sis of discretion -- analysis of discretionary spending? >> let me clarify, i was referring to the costs of coverage -- >> okay, i'm talking about the expenses that the affordable care act is going to cost the federal government over the next ten years. >> we have not totaled up in this way, senator, i can check. i have here our estimates of repealing the legislation that we provided to speaker of the house last summer that has a breakdown of total outlays and receipts, and if i can find it, so by our estimates from last summer or, the total cost, the total outlays over the coming decade was about $900 billion, and the total increase in revenues was about a trillion dollars from the affordable care act. but you were doing, i think, a different sort of breakdown into constructive pieces you have

here, and i just -- we can look at it, but i can't -- >> yeah. because we're showing about $2.4 trillion, about a trillion dollars this revenue, so my question is where does the $1.4 trillion come from to make up that gap? we'll talk to you offline. >> as i said before, senator, there are cuts in other sorts of spending and increases in revenues, and that's why on balance taking all the provisions of the affordable care act together, we estimated it would reduce deficits -- >> in the current budget window, you're still stick to that? >> yes, senator. >> thank you. senator sessions. >> thank you. with regard to the sequester and the jobs short term, but i in the long term your report makes clear on chart 6.2 as we discussed earlier that if we don't adhere to that $2 trillion in savings, we'll see a -7% reduction in long run gdp whereas if we do, we would have a 4% gain which is a huge difference, and if we would take

another two billion out, we'd have a 7% gain. so the long term, i think we just all have to realize that sometimes you have to take some medicine to get off an illness. finish are you familiar, dr. elmendorf, with a new imf, international monetary fund, report on europe that found on all the actions they've been taking over there that tax increases are two to five times more harmful as cutting spending to reduce deficits? >> i've heard of the report, senator, i've not read the details of it. and we should say as you know, in our analysis of the effects of changes in the budget, we try to incorporate the effects of changes in tax rates mission to the effects of changes in the overall amount of government borrowing. >> and your findings are not inconsistent with that general principle. i mean, your findings would indicate also that tax increases are less helpful than spending

cuts over the long term to deal with deficits. >> so the one clarification i would offer, senator, is that increases in marginal tax rates, the tax rate people pay and an additional hour of work or an additional dollar of saving, increases in marginal tax rates slow the economy relative to some other way of reducing deficits that does not affect people's behavior. >> with regard to marginal rates, you would agree that tax increases are less advantageous over the long run for the economy than spending cuts. >> than spending cuts that do not otherwise distort people's behave. again, we come back to the discussion about some of the role of investment. federal investments can also help the economy in the long run, so i want to be careful here. >> [inaudible] >> but, senator, the -- >> that's not what your report says. >> actually, senator -- >> your report says that in general that the tax increases are less, are less helpful in

reducing the deficit as are tax increases do more damage to growth over time than spending reductions as we seek to reduce deficits. >> so, senator, i think we try to be very careful in our reports not to paint either all tax increases or all spending cuts with the same broad brush. >> well, i know. >> and as you understand, the incentive be effects -- >> i look at your report, i think it says kind of what i said. >> rate increases. >> thank you. >> thank you. we'll go to mr. whitehouse. >> thank you, chairman. dr. elmendorf, one of the issues that we have to address is the cost of health care in the federal budget. as you and i have discussed before, the cost of health care in the federal budget relates to the cost of health care in the country.

and the figures i have is that we are spending about 18% of our gdp on health care nationally, and that that figure is northbound, headed for 20 and higher -- >> yes, senator. >> -- and that the least efficient of our competitor industrialized nations is burning maybe 12% of their economy on health care. so we pay about a 50% inefficiency premium in our health care system compared to other industrialized countries. the president's council of economic advisers said that there's $700 billion per year to be saved in the health care system without affecting the quality of care in any adverse way. the institutes of medicine, i think, are at 750 billion. rand came out with a range, and i think the midpoint of rand corporation's range was around 780 billion.

lewin group and george bush's treasury secretary who's pretty knowledgeable on this because he ran the pittsburgh group that focused on health care, they're at a trillion dollars a year. so these are some very, very, very, very big numbers, and 40 plus percent of those numbers would come back into the federal budget if we were able to achieve those savings on a national level. so i know that there's a scoring problem with trying to work from the national health care cost savings into the central budget, but just in terms of talking to us as members of congress, in terms of the priorities that you see out there, how important is it for us to get a handle on the health care cost problem in the united states? >> so, senator, i think it is, can make a tremendous difference for the federal budget if you and your colleagues and the

people running federal health care programs can find ways to slow the growth of costs that do not adversely affect people's health. but the i think thal problem there is -- >> that's the premise of all the different studies that i've reported, is that it won't hurt people's health care, it'll actually probably improve it. >> i understand, senator. the place i would disagree with you is i would think it's not basically a scoring problem as a policy problem that you confront. there's very widespread agreement, as you know, among analysts and practitioners, health care providers, that a good deal of health care spending in this country is doing little or nothing to improve people's health. but there's much less agreement and much less evidence to show how federal policies should be changed to squeeze out that extra spending. >> now, i'm not saying we understand the policy judgments yet, but as an area of focus, you think we should be relentless on this. >> yes.

absolutely, senator. >> thank you. >> make a huge difference. >> thank you. before i turn for the last word to senator murray, i think, mr. clyburn, you had a uc request? >> yes. yes, mr. chairman. i would like unanimous consent to enter into the record "the wall street journal" article that i referenced in my comments. >> all right. without objection. >> thank you. >> [inaudible] >> good? did -- >> well, just very briefly, mr. chairman, i want to thank you and senator murray for allowing us to have this dialogue and also for saving probably tens of thousands of dollars in your own budget-cutting techniques by turning off the heat in this room today. [laughter] [inaudible conversations] >> all we have are these suits. very briefly, i think this has been a great hearing, and,

mr. elmendorf, director elmendorf, i think, you know, what i take from what you're saying and the charts and so on is consistent with where i think there is kind of a growing consensus which is that the two of thirds of the budget that we don't appropriate every year which is on a to pilot -- autopilot is where we ought to be focused a lot of our attention even in this group. and what you said earlier was you don't mean to be too pessimistic in the sense that you think even if we made small steps in the right direction in terms of mandatory savings and reforms that markets would respond favorably, and we would be viewed by the american people as dealing with the real problem. is that correct? and if so, maybe it's a good conclusory statement for you to make about what you view this group -- >> no. >> we don't have all the answers here, and we don't have all the committees of jurisdiction, but we have an opportunity to do something that moves us in the right direction, what would you recommend that we do? >> well, senator, i cannot make

specific recommendations. i think that -- but i would say i think the big steps are better than small steps, but small steps are better than no steps at all. and no steps at all would be were better than stepping backward. so i think the specific changes that you would make are, of course, up to you and your colleagues to judge on behalf of me and oh citizens -- other citizens. but i think that while keeping your eye on the longer term problems is critically important, that one should not view this as sort of the world series or bust, that if one can move the ball a little bit, if one can make some changes that the fit your -- that would fit your sense of what the country's priorities ought to be and will reduce uncertainty about what will happen in january and february and throughout next year, that that can be an important lift to the economy,

can improve the efficiency with which the federal government operates. and so i think that, as i said earlier, one should not make perfect the enemy of the good. >> thank you. i'll give for the haas word, senator murray. >> actually, senator portman, that was where i wanted to end as well and echo what senator kaine said. we all appreciate your comments about not discouraging us from from doing the large. obviously, we have to keep our eye on the ball on that in the long run, all of us need to continue to work on that. but i think your comments today are especially important for all of us to hear that the uncertainty that is created by the way that things have been managed by crisis and by the sequester is harmful to the economy and that by making some small steps now, moving us forward, providing that certainty so that businesses can sign contracts and know where they're going for the next year to two years is extremely important for us the at least

make those steps, and i appreciate your comments on that and the advice to this committee. >> thank you. i want to thank everybody for attending today's meeting. we have had a good discussion. senator murray and i will continue talking and consulting about how to to proceed on the next steps. for now this meeting stands adjourned. >> thank you. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> today on capitol hill the senate's out until monday. the main legislative focus of the day is in the house where members are considering a bill proposed by republican fred upton of missouri, the chairman

of the commerce be committee, to allow people to keep previous health care plans for a year and to allow new sign-ups for those plans that were dropped by insurance companies as part of the new health care law. this coming the day after president obama's announcement that he will allow insurance companies to offer those old plans, but it would not allow new sign-ups as the upton bill does. procedural votes are expected to start shortly. you can watch live coverage of the house on c-span. the president has scheduled meetings today with insurance company executives, according to the associated press, and we'll go now to inside the rayburn office building where the house homeland security committee is about to begin. be. >> chair will recognize himself for an opening statement. the food and drug administration safety and innovation act was signed into law on july 9th, 012. 2012. the purpose of the bill was to bring predictability,

consistency and transparency to fda's regulation of drugs and devices. to that end, it reauthorized two successful user fee programs, the prescription drug user fee act and the medical device user fee act scheduled to expire at the end of fiscal year 2013. it also authorized two new user fee programs for generic drugs and biosimilars. in return for the agency meeting agreed-upon performance and accountability metrics. additionally, it permanently reauthorized the best pharmaceuticals for children's act and the pediatric research equity act. reformed both the drug and medical device regulatory processes, addressed drug supply chain and drug shortage issues

and incentivized the development of new antibiotic drugs, among other provisions. the bill represents a bipartisan success not only for our committee, but for congress as a whole. it passed the house by a voice vote and passed the senate by a vote of 92-4. now, over the year later we're here to examine whether the law has been a success for the american people resulting in safer drugs and devices, faster approval times and more consistency and predictability in the process. there's great congressional interest not only in the overall implementation, but also in the day-to-day operational challenges and successes. and i would like to congratulate dr. woodcock for what i understand is significant progress in the center for drug evaluation and research. i would like to welcome both dr. janet woodcock and dr. jeffrey shurin to the

subcommittee, and i yield one minute to dr. gingrey. >> mr. chairman, thank you very much for yielding, and i, too, am pleased to see the doctors here again today. the bill looked to address the crisis of antibiotic resistance with title viii, the gain act, which i wrote with my colleagues, mr. green, mr. shimkus, ms. degette, mr. whitfield and ms. eshoo. by focusing on incentives to bring new drugs to market, we have seen renewed focus on development of cutting edge drugs, antibiotics. however, even with the early success of this program, i do believe that we need to do more. and so, mr. chairman, cdc had a september report, cdc and my great capital city of atlanta, georgia, on antimicrobial resistance highlights 18 known resistance threats. it's estimated across the

country more than two million people are sickened every year with infections resulting in at least 23,000 deaths. 23,000 deaths. i look forward to continuing to work with the fda to create innovative pathways and processes. we must make sure that the agency and drug developers have as many tools as possible to navigate this emerging public health problem. and i yield back. and i thank -- >> chair thanks the gentleman, now yields the balance of time to mr.-- [inaudible] >> thank you, mr. chairman. today's hearing serves as a helpful pulse check of the fda's implementation of the agreements for the medical device, generic, biosimilars act signed into law last year supporting over 300,000 direct and indirect jobs and contributes more than $25 billion to the state's economy. historically, the user fee agreements have improved. the times of drugs and devices and today's hearing will help this committee gain further

insight on how the fda is carrying out these congressionally-mandated responsibilities. it is important that regardless of the challenges the agency face, it remain committed to bringing innovative treatments to market and in the hands of patients who need them the most, thank you, mr. chairman, i look forward to hearing from our distinguished witnesses, dr. woodcock and dr. shurin, on these issues, and i yield back to you, sir. >> chair thanks the gentleman. now yields five minutes to the ranking member, mr. pallone, for an opening statement. >> thank you, chairman pitts, and thank you to our witnesses for being here today. i'm eager to hear your testimony about pda's progress in implementing the -- fda's progress in implementing the act. over one year ago it was signed into law, and among other things designed to promote timely fda review of drugs, medical devices, generic drugs and biological products through the collection of user fees. it both renewed existing fda

user fee programs for pharmaceutical and medical device manufacturers and established new programs for generic drugs and lower cost versions of biotech drugs. the user fees are an essential component of the if fda's funding -- fda's funding. they help to insure the american public has access to safe and effective health care products. for generics at the time of enact amount, there was a backlog of over 2500 drugs. these essential products typically cost 50-70% less than their brand name counterparts and have provided an estimated $1 trillion in savings over the past decade. it's important that american consumers have access to these safe, effective and low-cost alternatives more quickly which is why the provisions in the generic drug user fee agreement were so important, because it gave fda the resources today need to make sure that happens. so i'm interested to hear on that progress today. the bill also gives fda

additional tools to insure the safety of the global drug supply chain as requireing registration for foreign and domestic drug establishments, administrative detention for adulterated or misbranded drugs and increased penalties for counterfeit drugs. the additional authorities allow fda to strengthen cooperation with foreign regular laters as well. these provisions were based on the ideas and proposals contained in the drug safety enhancement act which i introduced with mr. dingell, mr. waxman and ms. degette. we worked hard to gain consideration of this law and help keep our medicine safer in this ever-growing global supply chain. we also included provisions to address drug shortages. it enhances early notification of supply interruptions for certain medically-important drugs and directs fda to establish a tasks force and submit a strategic plan on drug shortage mitigation which fda

submitted to congress haas month. early notification started as a result of an executive order in 2007 and was codified into law, and it has helped fda to prevent shortages and decrease the number of new shortages. i will close by saying that the bill is the product of strong bipartisan collaboration and compromise that strengthens fda's ability to safeguard the public health. what i outlined here today was only a snapshot of the promising provisions of the law. we strengthen both the agency and the public health by its passage while allowing companies to innovate in the process, and i'm proud of the work we did in passing the bill, and i look forward to hearing about fda's progress so far in implementing this law. so i'd like to yield the remainder of my time to mr. dingell. >> i thank my good friend for that. this legislation is a fine example of the great work this committee can do when we put politics aside and work together in a bipartisan manner.

i hope the committee will return to this spirit when considering a lot of other issues that will lie before us today and in following times. one year ago president obama signed the food and drug administration safety -- [inaudible] [audio difficulty] big, bold steps to improve our -- [inaudible] fda now needs new and innovative tools to deal with an increasingly globalized supply chain -- [inaudible] keeping the american people safe from harm -- [inaudible] [audio difficulty] >> i look forward to hearing from our witnesses today about the progress they've made -- [inaudible] and look forward to hearing from food and drugging about what it is they're doing, how the matter

is proceeding and how much more this committee must do to see to it that they're able to carry out their responsibilities. dr. woodcock, welcome. i yield back to my good friend, mr. pallone, the time that he so graciously yielded to me. >> yield back the balance of my time. >> chair thanks the gentleman. now recognize the full chair of the -- chair of the full committee, mr. upton, for five minutes. >> thank you again, mr. chairman, and appreciate this morning's hearing on the implementation of the fda's safety and innovation act. as many of us know, this was one of the committee's most significant bipartisan achievements in the last congress. it really was. i particularly want to thank dr. woodcock who's with us and dr. shurin for coming today to provide an update on that implementation, something we said we would do when it passed. last congress this committee held at least ten hearings on

subjects related to the legislation, and at these hearings we focused on improving the predictability, consistency and transparency of fda's regulation of drugs and medical devices. improving fda regs brings life saving and life-improving drugs and medical devices to american patients and boosts job creation across the country including southwest michigan, importantly. i was very proud of the bipartisan work that we did in the last congress, and i am pleased to hear that initial reports on implementation especially at the drug center are promising. today is an opportunity to get an update on whether the fda is meeting its commitments related to the various user fees that we authorized as well as the independent assessment of the device center. it also is a chance to hear about how the fda is implementing provisions related to rare diseases, drug shortages -- important provision that we wrote in -- prescription

drug abuse and drug imports. these were provisions important to republicans and democrats, americans across the country, and we look forward to working with the fda on these issues. our drug and device makers are global leaders in innovation and job growth and will continue working to insure that they remain on top. and i am prepared to yield to any of my republican colleagues? seeing none, i yield back the balance of my time. >> chair thanks the gentleman. now recognize the ranking member of the full committee, mr. waxman, five minutes for an opening statement. >> thank you, mr. chairman. i'm pleased we're holding this hearing on the legislation that we passed last year in a bipartisan basis. bipartisan, bicameral and with a close working relationship with the food and drug administration. the bill had a number of important revisions, it reauthorized fda's drug and medical device user fee programs providing resources to enable the efficient review of applications and give patients

access rapidly to new therapies. it reauthorized two pediatric programs which fostered the development and can safe use of prescription drugs for children, established two new user fee programs to help fda speed up the review of new generics and biosimilars. it gave fda new authorities to address a wide array of issues with respect to drugs and devices, new incentives for the development of antibiotics to treat serious and life-threatening infections. this was designed to insure that the drugs we most need to protect us from dangerous resistant pathogens are the ones that are developed as quickly as possible. this law also includes provisions to modernize fda's authorities with respect to our increasingly globalized drug supply chain. today 80% of the active ingredients in bulk chemicals

used in u.s. drugs come from abroad, and 40% of finished drugs are manufactured abroad. this law gave fda new and improved tools to police today's dramatically different marketplace. the legislation addressed the crisis of drug shortages that has caused many problems for access to medicines in our country. there are provisions relating to medical devices. i had some concerns about many of the device proposals, but we worked together to address these concerns with the goal of assuring that nothing in the house-passed bill took us backwards in terms of patient safety, and i hope dr. shurin will tell us today whether we succeeded in that goal or if there are, if there have been unintended and detrimental effects of this legislation. mr. chairman, i thank you for holding this hearing. it's an important part of the job of congress not just to work together to pass legislation, but to continue our review and

oversight. i hope fda will share with us whether there are any refinements or improvements to my of the law's provisions -- any of the law's provisions that we need to pass through the congress. our goal was and still is to insure that the american public benefits from this legislation by getting access to safe and effective drugs and medical devices at the earliest possible time. i look forward to the testimony. i do notice that i do have a couple minutes left, and if any member on our side of the aisle wants that time, i'd be be happy to yield to them. and if not, i'll offer the time to anybody on the other side of the aisle who wants to make any further comments. if not, i yield back the time. [inaudible conversations] >> gentleman yields back. chair thanks the gentleman. this concludes the opening statements. on our panel today we have two witnesses from the u.s. food and drug administration, dr. janet woodcock, director of the center for drug evaluation research, and dr. jeffrey shurin, director

of the center for devices and radiological help. thank you for coming. your written testimony will be made a part of the record. we ask that you summarize your opening statements to five minutes, and at this time chair recognizes dr. woodcock for five minutes for an opening statement. >> thank you and good morning. i'm janet woodcock, head of the center for drugs at fda. the fdasia legislation was really landmark legislation for drug regulation. it authorized two new user fee programs, one of which was critically needed in a -- to fix a problem, the problem of the backlog of generic drugs, a program that had become burdened by its own success and a massive filing of new generic drug applications that we had. and another one which is more or less preventive, the biosimilars user fee program hopefully will help us promptly review similar

drugs and get them on the market as soon as we receive applications. it also made the pediatric, two pediatric pieces of legislation permanent, and i'm happy to say we passed a landmark of 500 labels that have been revised and updated with pediatric information because of this legislation. so 500 drug labels have information now for children. that didn't before. additional pressing problems that were addressed included the lack of new pipeline for antibiotics, particularly for drug-resistant organisms. the drug shortage problem and the supply chain safety issues. in addition, the legislation included a breakthrough designation program that has been very enthusiastically taken up both by the industry and by the fda. and many other provisions, of course. congress laid out a very

ambitious agenda and time frame for accomplishment of all of this, and we've been working hard. we've been very successful in implementing provisions. however, i brought our spread sheet. this is two-sided, okay? tracking of all the obligations that we have under this legislation. and this isn't all of them, but it's certainly the ones that have hard deadlines. so we're trying to work against all these deadlines and, um, make all our time frames and so forth. i'm happy to discuss in this year's progress with you, and i look forward to working with the committee. thank you. >> chair thanks the gentlelady. dr. shurin, you're recognized five minutes for an opening statement. >> thank you. mr. chairman and members of the subcommittee, i'm dr. jeff shurin, director of center for devices at the food and drug administration. fdasia includes a third authorization of the medical device user fee act, reauthorization of the program

has helped to speed innovative new products to market without compromising safety and effectiveness. it did so by establishing new policies, procedures and performance goals and by boosting our review capacity. it represents our commitment to increase the predictability, consistency and clarity of our regulatory processes. in exchange for the additional user fees, we work with stakeholders to develop much-enhanced performance goals. we are committed to meeting those goals and preliminary data indicates that we are on track to meet or exceed all of our fiscal year 2013 performance goals. and that includes a new shared goal with industry of average time to decision. since the early 2000s, our performance on several measures had been steadily declining each year, reaching its lowest point in 2010. in 2010 we conducted an assessment of premarket programs, identified the problems, proposed solutions, sought extensive public input

and issued a plan of action in january of 2011 with some corrective action starting in 2010. due to the reforms we put in place, we have seen improvement in these key measures. for example, our backlogs of case emissions and pma applications are each down by about one-third. our average total time to decision of pma applications is down 37%. the percent of 510ks cleared and in the case of pmas, back to where it was about a decade ago. to provide greater transparency, we are providing substantially more detailed reporting on our progress in implementing performance goals. these reports are publicly available online and are discussed at quarterly meetings with industry. fdasia also includes provisions to streamline novel devices of low to moderate risk. since passage, we've seen the number of de novo requests roughly double. we've also implemented process

improvements and are seeing our review times for de novos trending downward as a result. as part of our commitments, we agreed to implement our benefit risk determination guidance we'd issued in march 2012. for the very first time and with public input, we described the factors we use. the framework we develop is flexible and patient-centric. for example, one factor we may take into account is patients' tolerance for risks and perspectives on benefits. because patient viewpoints matter and to further implementation of the framework, earlier in this year we launched our patient preferences initiative. the initiative seeks to identify and validate tools for assessing patient preferences, establish an approach for incorporating those preferences into our device approval decisions and then communicating that information publicly so that patients and practitioners can make better informed decisions. we implemented the fdasia

provisions relating to ides. we've trained our staff and modified our decision laters to align them -- decision letters to align them with the requirement that fda may not disapprove on the basis that it would not support approving the device. we have also taken several steps to facilitate first in human studies in the u.s. as a result, the meantime for giving approval to manufacturers to proceed with clinical studies of their devices has been cut almost in half. we also recently announced the final rule for unique device identification or udi system which will provide a standardized way to identify medical devices. the uda reflects substantial input from the clinical community and from the device industry during all phases of its development. once fully implemented, it will provide renewed visibility for quites to the point of patient use, greatly enhancing our postmarket surveillance

capabilities and offering a way of documenting device use in electronic health records. we've also made good progress on classifying the remaining preamendment devices since pass an of fdasia, we've issued 13 orders. implementing the data is a massive undertaking, but we are committed to doing it in way that provides lasting improvement to public health. mr. chairman, i commend the committee's efforts and am pleased to answer questions. >> chair thanks the gentleman. that concludes the opening statements. we'll now begin questioning. i'll recognize myself five minutes. before i begin, dr. woodcock, would you submit that spread sheet for the record? the spread sheet? >> i'll have to confer with my folks and see what i can send you. we definitely will give you something. >> all right. >> thank you. >> and i have a number of questions for both of you that i'll submit for the record. would appreciate you to respond promptly. we enacted the legislation to

bring consistency and transparentty to fda's regulation of medical devices and drugs. fdasia included significant changes to the review process on the device and drug side. how have you translated the fdasia changes into the regulatory review process, and how have you communicated these changes to your staff, how are you insuring that your staff implements the law correctly? dr. woodcock, you want to begin? >> well, some of the primary changes that we received with the industry under the agreement for a new review program for new molecular entities, and we agreed they're the most innovative drugs. and we are now having mid-cycle meetings during the review process. so this mainly changes how we run the review process, allows for more communication between industry and the review staff during the review process, and

it's hoped we can clear up any confusion, answer questions and so forth and get to a complete response that includes all the issues at the end of day. so we're running that as a pilot, we're going to have an independent assessment of that. we have had a number of new no lek around entities have been approved, i believe six have gone through that program, so it's in its early stages, though, because we're going to run several years of the program and then evaluate its success. and the other major change, of course, has been the breakthrough designation program, and i could talk about that if you want. so we've received almost up to a hundred applications for designation under this program. we've designated more than 25 different products for a range of different diseases as potential breakthrough products. and we have just approved two, one last week and one on wednesday.

on wednesday we approved a truck for mantle cell lymphoma which is a rare kind of immune system or blood tumor, all right? and so we feel this program has been fair hi successful so far in -- fairly successful so far in bringing greater attention to drugs that are potential game changers for people with serious diseases. >> all right, thank you. dr. shuren, the industry and the fda agreed to have an independent, two-phase assessment and program evaluation to object ily assess the fda's premarket review process. can you explain how fda was involved in setting the parameters of this assessment? >> certainly. we put out calls for independent contractors -- [inaudible] and that was a -- my acoldies. we had put out a call to have an independent contractor perform the assessment, and booz allen hamilton is that contractor. we worked on a draft statement of work which we put out to the

public for comment. we had discussions with industry on what should go into that statement of work, and then finally, we've been overseeing the process for the contractor. we get updates on the progress they make, but it is independent, so we don't know what they're actually going to report to us. our understanding is they have gone out, they have had conversations with stakeholders, particularly industry, they've conducted focus groups, and we're expecting to get their first report very soon, and we have a public commitment to make that available to the public in december which we will do. and that first phase includes their at in this point preliminary findings, a lot of the low-hanging fruit. six months thereafter, so in may, they will have the second phase where we will get all of their recommendations. at that point, too, we have a public commitment to issue our plan for implementation of the recommendations. >> would you agree to submit a detailed accounting of the agency's involvement with the contractor relating to the review and any recommendations or directions you provided them?

>> yes, we can provide you with information. >> and would you agree to submit a compiled list of recommendations in their entirety to the committee upon its completion? >> we're going to make it available to the entire public. >> okay. >> but i'll include you on that too. [laughter] >> all right, thank you. dr. woodcock, the president's council of advisers on science and technology september 12 report included specific recommendations on how the federal government might propel innovation in drug discovery and development. they expressly recommended, quote: it could be with valuable for the congress to establish that encouraging innovation in drug development is a clear component of the fda mission. end quote. do you agree with the president's advisers that including innovation is the mission statement -- in the mission statement would be valuable? >> well, i think it's a double-edged sword. we don't encourage innovation

for innovation's sake, okay? innovation can end up being bad as well as being good, right? we -- but innovation is essential to treat current unmet medical needs. so absolutely, we should foster innovation and be open to it and allow new methods of both treating patients and manufacturing drugs progress. so i think it's really how you state that support for innovation that's important. >> all right. my time's expired. chair recognizes the ranking member, mr. pallone, five minutes for questions. >> thank you, mr. chairman. my questions of dr. woodcock, first, welcome back. >> thank you. >> i can guess you've had quite a busy year. and i wanted to start today talking about the new office of generic drugs. i was glad to see the decision fda made last year to elevate the office of generic drugs to a superoffice on equal footing with the office of new drugs within the agency. ask as you know, i introduced a bill last year that included a

provision to do just that, and i've long been an advocate for this structural change within fda to enhance the role of the a office of generic drugs. i'd like to ask you, dr. woodcock, whether the office of generic drugs has officially been set up at its new, elevated position, and how is it structured? what kinds of changes have been made, and when do you expect the change to be finalized? >> >> the, um, organizational change has not been finalized, but we're in the final stages of that, and i would hope that it would occur very soon. be what it will do is recognize the fact that generic medicines treat most people in the united states, 84% of dispensed prescriptions are for generic drugs. and so the new generic drug office will have a much more clinical focus, will have more doctors there, more clinical staff very much focused on therapeutic equivalents, making the adverse event reporting,

making sure those generic drug labels are up-to-date and so forth. so as a superoffice, it'll have -- it is proposed to have a bioequivalence office, a research office because be under the law -- because under the law we negotiated and received money so that we can do research to get new categories of drugs like inhalers to become generics, right? so they have a research office and then an office that will run the operations of the -- including a clinical safety staff. now, as part of, what we're proposing, though, is that quality regulation, drug quality regulation be with reorganized and that we centralize that. and that is a plan that i'm working very intimately on. and this would insure that generic drugs, new drugs, over-the-counter drugs, any kind of drug we regulate have the exact same quality requirements

across the industry. >> okay. then i want to commend the fda on meeting its hiring goals for the fiscal year. and i know the difficulties associated with implementing a brand new program, but how many ftes have you hired to date, and how many do you plan to hire in the first two quarters of next year, and given the backlog of pending -- [inaudible] can you give the committee an estimate on how many of these new hires will be dedicated to review? i've got others, but let's start with that. [laughter] >> um, we've -- okay. we've hired upward of 300 people. i mean, that number changes every day. we're aggressively hiring, and we exceeded our goal which was 25% of the total number of people that were to be hired, okay? as far as -- we've acted on 900, i think, of the backlog in different way, so we've reduced that pending backlog, but it's

still formidable. i wouldn't, you know, diminish that. and we have done a lot of things to try and aggressively address this backlog. so your other question? >> well, i was going to ask you how, if the government shutdown affected the progress, you know, for those two or three weeks. >> well, the major effect on our review programs -- because we were able to continue to operate under the user fees -- however, the inspections stopped for those several weeks. so the inspectional programs were not operating, and, of course, that's one of the things that we really need to ramp up under the legislation, is to increase the number of facility inspections that we do if we're going to tackle this backlog and get into a steady state. >> i just, and the last thing, it's my understanding that fda recently advised sponsors that it has restricted communications with sponsors specifically rather than providing ongoing

status updates, the fda only provides approval answers. can you explain the reasoning behind this, you know, why you feel the need to have less communication than before given we have the user fee funds available. >> >> we have upward of 8,000 items pending in the generic drug review program, all right? and if -- what the previous practice was companies would call all over the place to try to find their status. if every chemist and biogive lens reviewer is answering questions from 8,000 different sites asking them what is the status -- we're never going to get done. so we're trying to bring order to this process like we have for the legislation, and what we want to do is have predictable deadlines so that every company knows their application is on track and going to get out of the agency, and they're going to get a complete response within the time frame that's been established under gdufa. so i think some of this is a transition issue where we're going from one state to another,

and we're going to have to get through this period. we're doing everything we can, and we're considering additional steps to notify industry as their application approaches an action so that they can prepare, say for launch or whatever they need to prepare for. we understand that need. however, we can't have companies, thousands of calls to reviewers, or we're not going to get this program done. >> all right. thanks a lot. >> chair thanks the gentleman. we are presently voting on the floor, we'll try to get true a couple more members. chair recognizes mr. whitfield for five minutes for questions. >> well, thank you very much, and thank you all for joining us this morning. last april i attended a meeting with a group of dermatologists, and they were talking about the approval process for over the counter in general and sunscreen in particular, and they had indicated that there were, like, eight sunscreen applications that had been at fda waiting for

a decision for, like, ten years, some of these had been used in europe. we all are very much aware that you all have a very heavy workload, and you have limited resources. and i know in conversations with congressman dingell and on the senate side senators reid and isakson have been discussing this issue, and senator -- i mean, congressman dingell and i have tried to draft legislation. and is we had submitted to you all for technical assistance. i was going to ask, one, are you -- with the multitude of issues you deal with, are you even aware of the legislation that we have submitted? and if you are, could you give us any idea of maybe when we could expect a response from you? >> we hope you will get a prompt response. >> okay. >> this is a very intractable problem. i think if possible, we are more

frustrated than the manufacturers and you all are about this situation. we have to do regulations to get these ingredients into monographs. that's the problem. >> okay. >> and they're backlogged, and they are slow to get through, and we have to do a proposed regulation, sometimes we have to do advanced notice of proposed regulation, then do a proposed rule and a final rule which can take six to eight years, and we have multiple categories of these over-the-counter products that we have to handle. but the sunscreens are really -- there's a public health issue here. >> right. and who on your staff specifically can we be in contact with on the technical assistance? >> well, i think that, um, our lead -- and this is dr. sandra quiter who's acting head right now of the office that oversees this, but, of course, work through our legislative staff. >> okay. >> and we will provide any assistance needed. >> all right. >> would the gentleman yield?

>> i'd be happy to yield. >> briefly? first of all, i want to thank the gentleman. second of all, i want to commend him, and third of all, i want to note that this is important. this matter's been dawdling prodigious over long delay, and it's simply got to come to a halt. your assistance would be extremely important. i want to work with my good friend, and i urge you to resolve this problem. it's a significant problem that does do the food and drug administration no credit whatsoever. >> i yield back the balance of my time. >> the chair thanks the gentleman. we, i think we can get one more in. we will reconvene shortly after the second vote. there are two votes, so that'll be about 11:00. chair recognizes the gentleman, mr. dingell, for five minutes. >> [inaudible] >> all right. >> [inaudible] >> all right. then we will at in this point recess the committee until after the second vote and hope you'll

be patient with us. we'll get back as soon as we can. thank you. the committee's in recess. [inaudible conversations] [inaudible conversations] >> and as you may have just heard there, a recess in this house homeland security subcommittee meeting so that members may go to the floor of the house to vote, a vote is currently underway. the committee, by the way, will

reconvene after the votes in the house. in the house right now, a procedural vote is underway on a bill that is proposed by republican fred upton of missouri, the chairman of the commerce committee, to allow people to keep previous health care plans for a year and to allow new sign-ups for those plans that were dropped by insurance companies as part of the new health care law. in this coming the day after the president's announcement that he will allow insurance companies to offer those old plans, but it would not allow new sign-ups as the upton bill does. the procedural vote on this matter is underway now. you see there's time remaining, and most members have not yet voted. the president, by the way, has scheduled meetings today with insurance company executives. the associated press writes: president obama trying to rescue his much-criticized health care program is set to discuss strategy with health insurance ceos. the white house meeting

scheduled for fried comes after obama announced a substantial change to the law. president said thursday that insurance companies can offer people another year of coverage under their existing plans. white house official says obama and senior aides will meet with ceos to discuss helping people enroll in new plans and will talk about ways to minimize any disruptions as consumers switch to new mans. the official was not authorized to speak publicly in advance about the meeting and spoke on condition of anonymity, that coming from the associated press. while this vote is underway and while we wait for the committee to reconvene, we will show you a portion of this morning's "washington journal," the affordable health care act and the changes were a topic of this morning's discussion.

>> host: now joining us is representative andy harris, a republican of maryland, also a medical doctor. representative harris, how are you going to vote today on the fred upton bill, keep your health plan? >> guest: oh, i'll vote for the bill. the bill actually puts statutory language behind what the president did yesterday. even more importantly, in order to incentivize the insurance companies to actually rate those plans, it actually opens them up to other people. besides the people who have them, it opens it up to people who would want to purchase as a new purchase as well. because without that incentive, i don't think the insurance companies are going to be willing to take the time and effort to rewrite those policies. >> there's a lot of pushback this morning saying they were unaware that this was going to happen, and they've been planning for this law to go into effect. >> guest: yeah. and that's the big hitch. that's the big if. i think that only a very small number of people will be helped by what the president did yesterday even with the added

incentives that we'll add into the bill today to allow new customers. i still think insurance companies -- there's just no time. it's too little too late. >> host: there's also some criticism of the bill saying that it will gut obamacare. >> guest: well, if it would be successful and allow people to keep their plans -- and, again, i don't think that's likely -- then it would cause problems with the actuarial calculations in the exchange. that's right. look, this -- as we've said all along, this plan is fundamentally flawed. we're learning about the flaws. i think it actually might be too late to change many of those flaws. >> host: dr. harris, what's been your experience working with insurance companies? >> guest: you know, look, insurance companies are not the nicest, friendliest, kindest people to work with, but they've always been better to work with than the government payers. government payers are the worst because they have no responsibility to anyone.

they really are. you know, for instance, under medicare physicians in this country haven't had an increase in pay in ten years, and i mean not even an inflation increase. that's not true with insurance companies, but it is true with government payers. medicaid, great expansion in medicaid under this plan. what you'll find is that physicians really don't -- they really aren't able to take care of medicaid patients because the government just doesn't pay them what it costs to take care of a patient. >> host: do you know how many people in your district in maryland on the eastern shore have signed up, have attempted to sign up in. >> >> guest: we don't have that breakdown, but the maryland numbers for the first 32 days were 1,284. so if you divide it among the eight districts, i'd assume that, you know, maybe we had, you know, 150 people sign up in my district. con last that with the roughly -- contrast that with the roughly 10,000 who ross their policies -- who lost their policies. >> host: do you know what percentage of your district is

uninsured? >> guest: it's assume it's about the same. it's about average for the state of maryland, so we probably have 100,000 people uninsured in the district at any given moment if time. >> host: representative harris, have the republicans offered a viable plan to replace obamacare? >> guest: i think h. r. 3121 is. i mean, we had the american health care reform act. it was filed several weeks ago. the two things it does that are the most significant is, one, it extends the tax credit and deductions not only that employers enjoy now, but it extends it to individuals. so if you or i go to buy an individual policy, we'll get the same tax treatment as a large employer would. the second thing it does is it allows purchase across state lines. in this day and age, we're used to clicking onto amazon.com, buying things freely on the internet, and yet this is one segment of our economy that we can't purchase across state lines, and we ought to be able to do that. >> host: why can't we?

>> guest: you know, traditionally, insurance is a state-regulated industry. but then again, the affordable care act transcended that by imposing mandatory regulations across state lines. if we can do that under the affordable care act, we should be able to allow the purchase of insurance across state lines. >> guest: 585-3880 for democrats, 3881 for republicans, a 85-3882 for independents. you can also make a comment on our twitter feed @c-span wj is the handle. want to introduce you to our guest, representative andy harris currently in his second term, he represents the eastern shore area of maryland which is across the chesapeake bay from where we are now. he is a physician at johns hopkins. now, are you still a physician? >> guest: i'm on leave, although i do practice about ten days a year at one of the hospitals on the eastern shore. >> host: you do? >> guest: that's right. >> host: as an --

>> guest: anesthesiologist. >> host: how long did it take before you could say that word? [laughter] >> guest: spelling it's difficult too. >> host: and he worked at johns hopkins, and served this operation desert shield and desert storm as a doctor in the reserves. >> guest: that's right. the naval reserves. >> host: and we're going to continue our conversation on proposed changes to the affordable care act beginning with beverly in columbia, missouri, democrat. beverly, please go ahead. >> caller: yes, i have one question, and i would like to know why would the koch brothers be out here selling liquor to young college students to prevent them from buying insurance? why would the republican party be in favor of that? why haven't they spoken up? >> host: beverly, are you suggesting that because of

efforts against the affordable care act that these are the republicans trying to prevent people from buying insurance? >> caller: yes, i am. >> host: all right, thank you very much. representative harris? >> guest: well, i can tell -- beverly, all i can tell you is young people don't need liquor in order to decide not to buy health insurance, that's the problem. what we're seeing is that young people who are at the cornerstone of making the affordable care act work are choosing not to buy the insurance policies. these policies are overpriced, they're overregulated, and again, these young people made the choice right now not to buy insurance, why would they buy it on an exchange when it's twice as expensive? >> host: ernie, howard beach, new york, republican line. >> caller: good morning, representative harris. i'm a republican. my suggestion to other republicans is get out of the way. by that i mean let him have what he wants, let the democrats have

what they want. you think it's going to fail, i think it's going to fail. the country right now thinks it's going to succeed. when it fails, it will be a disaster. but don't be perceived as trying to block, block it. you can't, you can't stop it there happening. it's a disaster. just let it happen. it's going to to be easier by letting it fail and that being perceive -- and not being perceived as, not being blamed for it. thank you. >> guest: bernie, you're right. i think -- but i do think that america is beginning to believe that it's not going to work. what we're going to do today, which is probably going to be one of the -- you know, this is going to be one of the last efforts because, you're right, this horse is out of the barn, this train is barreling down the tracks. but we do need to take action to put statutory, to put legislative language behind the president's proposal and to make it a little better because, again, we have to incentivize the insurance companies that actually write these policies to

allow even new people to sign up for these policies. and, you know, the president's saying that these policies were throwaway policies even, you know, jay carney saying that even as late as a few days ago. well, now the president actually wants to extend these policies. look, people want these policies. we should do everything we can to make them available. we really shouldn't throw people off insurance policies. the whole ideas behind the affordable care act is get the uninsured insured. so to me, it seems counterproductive to this maryland, in my state, to cancel 73,000 people and throw them off their insurance policies. >> host: smiley tweets in to you, congressman, you know if you buy health insurance across state lines with no regulations you would get rip off. >> guest: well, there certainly would be regulations. and, again, the federal government, the role would be to organize the interstate regulation. obviously, regulation is going to have to occur. regulation always occurs with the sale of insurance products. so i'm not suggesting -- and we

don't suggest in h.r. 3121 -- that you don't regulate the policies, but that you coordinate the regulation among state regulators. >> host: we had some callers earlier this morning talking about the fact that with the increase this -- in medicaid, people signing up for the medicaid coverage on the health insurance exchanges it would add to our premiums, our private premiums. >> guest: look, medicaid is a cost transfer. there's no question that medicaid is a cost transfer, as i said. medicaid traditionally does not pay either hospitals or providers the actual cost of delivering the care. that cost is always transferred to private insurers. and in this case, it will be -- inincreasing the number of folks in the medicaid program will increase the tax burden. what we're finding out now is that a large percent, up to two-thirds of the people who are being signed up actually are not going to qualify for the federal government's 900% coverage --

100% coverage. they previously qualified, just weren't signed up. so we're going to have state fiscal issues with it, federal fiscal issues from the increased costs and finally, there are not enough providers who see medicaid patients to take care of ten million more people in the system. >> host: steve is in troy, michigan, on our independent line. hi, steve. >> caller: good morning, representative harris. >> guest: good morning. >> caller: i do have a question, but i have a few things to say before the question. now, i didn't have insurance until i was in my mid 40s. i was always healthy as a young person, so i didn't even think about insurance which most of my friends didn't either. but i would like c-span to correct the democrats that call up, and they do this every day. obama lied, today believe the lie, so they were deceived. the insurance companies -- and i'm not fond of them -- they just follow what obama told them to do. so they're cutting people off because ezekiel emanuel finally admitted -- and he's one of the

creators of obamacare -- that the purpose of getting the people off the insurance companies so that they could come to obamacare, their plan was for people the lose their insurance. now, my question is, is anyone going to confront obama in dealing with he cannot break the law? it's a law, so is anyone going to challenge him on this? i'm talking about any republican or independent. >> guest: well, that's exactly why we're taking the action we are today. we don't believe that a good practice, although this president has used this practice before of selecting which laws to enforce and to use discretion about which laws to enforce. that's the mechanism he proposes to initiate what he's done in the last day. we think you actually have to have statute behind it, so we are going to, again, change -- athe tempt to change the statute today with an important difference. that in order to entice the insurance companies to actually write these policies and continue them, that we actually allow new individuals.

now, with regards to, you know, not having insurance until you're in your 40s, what we have to do is we have to make it very affordable for young folks to buy insurance even if it's catastrophic insurance. and i'm afraid that the way the affordable care act was constructed, it is -- what it did, it greatly increased the premiums on young folks, and that's not the way to encourage them to buy insurance. but through our bill, h.r. 3121, we would by providing income tax credits to anyone buying insurance -- and when you're young, that income tax credit would probably actually be higher than the insurance product you would buy. >> host: representative harris, from the national journal: conservatives question toothless upton bill saying that the bill that's being voted on today sends a message, but it doesn't have any teeth, it doesn't, it's not very strong. >> guest: look, it is probably too little too late. we conducted this fight, you know, our last stand on the affordable care act was in

september, two month manies ago. had -- two months ago. had we to months ago done this, insurance companies probably would have had the time and state regulators probably would have had the time to set something up. i do think it's too little too late, but if we can help a few thousand people keep their insurance, it's probably worth it. i don't think this is going to be very extensive help. >> host: paul in new york on our democrats line. you're on the "washington journal." >> caller: hi. i was just wondering what the effect of letting people keep tear old plan -- their old plans and then all these new plans being created, how is that going to affect the premiums in the market and the price of everything going forward? that's it. >> guest: sure, that's a good question. there are two things that happen. first of all, if we could continue, if insurers decide the continue these plans, they will be lower priced than the exchange plans, but the exchange plan prices are fixed for the

next year. of so for the next year, it won't affect the prices on the exchanges at all. however, if we allowed this to continue another year, you'd see the exchange plan prices had to go up because the fact is that most of the people who have individual insurance whose plans are being canceled -- 73,000 in maryland -- tend to be younger and healthier, and the exchanges don't work unless you can move in a large quantity of young, healthy people onto those exchanges. the problem is that those policies cost more on the exchanges, and that's why the letters i get, you know, the two major complaints are that the new replacement policy will cost a lot more. the other one is that the deductibles are much higher, the out-of-pocket expenses. and that was acharacteristic of the way the exchange plans were designed. i don't think americans are used to having a family deductible of, in some cases, $12,000. even with the small business plans in maryland, the

out-of-pocket expenses are going to be as much as $8,000 for a family. you know, for a middle class family, that's a lot x. that's not affordable. and that's why, again, fundamentally the way the plans were structured, there's going to be a backlash against this, and we're in the middle of seeing it. >> host: jim at fern hollow tweets in to you, representative harris: the president has already said he will veto the upton bill, why are you wasting your time passing it? do something productive. >> guest: well, look, the president has claimed he would veto bills in the past that he's looked at. i don't understand why the president doesn't like our bill. it gives the statutory language to what he wants to do. if the president wants to run the government by the president deciding which laws to enforce and which not to enforce, that's his opinion. congress has a very different preponderance. we don't think the country should be run that way. we are a co-equal branch. this legislation and this law originated in congress. we should have the ability to change it.

>> host: politically, does what the president did yesterday benefit republicans? >> guest: i honestly think what the president did yesterday is such insignificant consequence, because i just don't think the insurance companies and the regulators have time to do this. i do think watching the president -- and i watched the, his press conference from beginning to end -- the president's sense is that there is a real problem with this bill. i congratulate -- you know, tongue in the cheek, i congratulate the president for coming to our opinion. i think he comes a little late. again, had we had this discussion can, again, you know, when the senator said this was going to be a train wreck earlier in the year, if at that moment in time when it had become pretty clear this rollout was not going to work, the president should have worked with congress, asked congress for help, real help. not just, you know, rubber stamping but coming to us and saying, look, what are some of the plans as republicans? look at what we have in h.r. 3121.

maybe we could adopt some of those things. until the president does that, this is going to be a train wreck. >> host: next call for representative andy harris, a republican of maryland, comes from gary in forest, virginia, on our republican line. >> caller: good morning. >> guest: good morning. >> caller: have, i've been a insurance salesperson for high and health. i'm a software engineer and also a small business owner. i have a real good perspective of what's going on with this thing. but what's interesting, and i'm just going to make one comment then move on, almost all of my life i've voted republican. but the republicans in the last ten years have become kind of insincere in what they've saying -- in what they're saying, and i've moved away from the republican party because of that. ..